A speech from the new Secretary to the Treasury

Early last month the new Secretary to the Treasury, Caralee McLiesh, gave her first on-the-record speech in the new role.    The Treasury was a bit slow to release the text, but it is now available here.     It wasn’t a long speech, but it was to a fairly geeky audience –  the Government Economics Network’s annual conference – most of whom wouldn’t yet have seen much of the new Secretary.  With not much else to go on yet, it seems reasonable to look at what she said for any indications of whether/how The Treasury is changing for the better under new leadership.

I’ve been uneasy about the new Secretary for several reasons:

  • first, because she isn’t a New Zealander and has no background or experience in New Zealand issues or people, no domestic networks, and (most probably) little in-depth understanding of the idiosyncrasies of New Zealand, including its longrunning economic underperformance, and
  • second, because she has no work experience in a national economic agency/ministry, dealing with national economic issues (financial crises, monetary policy, exchange rates, immigration, trade, or even very much exposure to fiscal or tax policies), and yet is now the principal economic adviser to our government (itself light on economic expertise or experience).

On the other hand, she has some fairly good academic qualifications and may well be quite capable as the sort of generic public service manager favoured by the current State Services Commissioner.   Whether she can bring to the table more than that –  and New Zealand economic policy, and The Treasury (weakened over the previous 10-15 years) needs more than that –  remains to be seen.

The topic for the GEN Conference was “the role of regional and urban development in lifting living standards”. It is fair to say that my response to the title was along the lines of “there is no such role”, but it was still going to be interesting to see how the Secretary chose to respond to the topic, and perhaps to nest any specific insights on regional/urban issues in an understanding of the much bigger national productivity failings.

Of course, there are distinct limits to what serving senior public servants can and can’t say.  One could argue they mostly shouldn’t be doing public speeches –  their job is primarily to advise ministers, not to spin government PR (or to explicitly challenge it).  But successive Secretarys have chosen to give speeches.

Here is McLiesh running spin for the government

The theme of today’s conference is how well-performing regions and cities can contribute to our wellbeing and raise living standards for all. Those of you familiar with the Government’s Economic Plan will know that the Government has identified ‘strong and revitalised regions’ as one of the key economic shifts it is working towards. And work on government’s urban growth agenda and resource management reforms is well underway.  So this is a significant and substantial topic for New Zealand.

She, if no one else, I guess has to take the government seriously, at least in public, when it says it has a (30 year) Economic Plan.

But in the rest of speech there really wasn’t much substance.  There was the best part of two pages recounting the Living Standards Framework – in text that is fine, but which offers nothing fresh.  At least it ended with a reminder that economic performance matters

The Treasury always has an important role to play in advising government on how to lift economic productivity and performance, and this remains a core part of our LSF thinking. A roomful of economists doesn’t need to be told, but I will say it anyway, that high living standards depend on strong economic performance, and that markets that operate well – and I emphasise, “well” – can, and do, powerfully lift living standards. They enable people to participate in labour markets, earn higher incomes, and apply those incomes towards whatever wellbeing means for them. The story of development is basically a story about investment in the institutions and mechanisms that enable people to flourish in deep and complex markets – that is, to grow.

But really that should be “motherhood and apple pie” stuff to an audience of economists.  And sadly, there hasn’t been much sign of rigorous or systematic advice on lifting productivity and economic performance in recent years.

She moves on to highlight that there are regional differences across New Zealand.  There is quite a nice graphic drawing on OECD data, but she conveniently omits to highlight that (according to the graphic) not one New Zealand region has incomes in the top third of OECD country regions.  Productivity is a huge failing in New Zealand, and that failing just isn’t region-specific.  If anything, the gap between highest and lowest income regions within New Zealand is unusually small by OECD standards.

And thus when the speech says

Regions may contribute more to national economic development if we can tap unrealised economic potential.  A policy approach that emphasises strengthening regional comparative advantage means we may be able to lift national economic performance rather than just shifting economic activity around the country.

it has the feel of someone who is stuck with the Provincial Growth Fund, rather than someone who has thought hard about New Zealand (and what does that counteractual –  “just shifting economic activity around the country” – mean: who has been doing that?)

The next paragraph isn’t any better

There can be a role for government in helping communities to identify strengths and opportunities or strengthening local governance. There can be a role in working across agencies, local authorities, local people, and the private sector to coordinate and facilitate private investment. Or in investing in infrastructure where this directly unlocks economic opportunities. And can we do more to coordinate between social interventions and economic opportunities to ensure these approaches are complementary?

I guess bureaucrats would like to think so, but is there any evidence of governments being able to specifically catalyse regional economic development in a useful and sustainable long-term way, other than by getting the overall national policy settings right, and understanding the national failings?

There are some strange observations

More than a third of New Zealanders live in Auckland, a city with house prices vastly in excess of the marginal cost of supply.

But house prices aren’t “vastly in excess of the marginal cost of supply”, rather national and local regulatory policies have driven the marginal cost of supply –  especially the land component –  well above where it would otherwise be, so that there is no huge gain on offer to people developing new houses.

It was encouraging to see the Secretary allude to Auckland’s longer-term economic underperformance

Between 2000 and 2018 our national population grew by 26 percent, but all of the above-average population growth has been from the Bay of Plenty northwards, with Auckland the fastest growing at 37 percent. Contrast that with population growth of 7 percent in Southland, 5 percent in Gisborne and 4 percent on the West Coast.

This population growth is despite the fact that Auckland’s GDP has grown at only 82 percent of the national average in the 2000 to 2018 period.  In contrast, GDP growth was well above the national average in every region of the South Island, while Bay of Plenty and Northland had above-average growth too.

But there isn’t much sign that she or her department have thought hard about a compelling narrative that explains what has gone on.  Instead we get this rather confused paragraph

Other cities and regions may have plenty of available land.  However, they will need to improve their quality of business and quality of life attributes too if they are to significantly ease pressure in Auckland. And worldwide we see that agglomeration into major cities continues despite congestion and high property prices. Clearly, both employers and employees often see better long-term prospects in these major cities, despite efforts to develop other regions.

In both New Zealand and Australia, we certainly see more people in major cities, but little evidence of the vaunted productivity gains from continued concentration of people in these places.  Natural-resource-based economies tend to be like that, but there is no hint of that as an issue in the Secretary’s story.

And from there the speech heads downhill again

Central government has created more capability through urban growth functions in HUD, and appointing senior regional officials to lead engagement and coordinate government across regions.

Of course lifting wellbeing across the regions is not just up to central government, which is why we see more partnering with local government and regional economic development agencies over recent years to develop action plans.

Lots of busy bureaucrats, lots of meetings for ministers and officials to open and attend, but not much sign of any understanding of quite why the overall economy has performed so poorly over so long (when almost all the tools of economic policy are controlled at the central government level).

Of the final page, I could commend her sense of humour, including this old Tom Scott cartoon (if memory serves from back in the late 80s or early 90s)

scott

But then it is straight back to the self-congratulatory stuff

In closing, I want to acknowledge that being an economist working in public policy is incredibly rewarding, but it can also be challenging. We are a community of professionals that sometimes has to be loud to be heard. When people want the comfort of policy that is simple, certain, and swift, we can find ourselves the sometimes uncomfortable voice of technical rigour, nuance, and realism.

I guess that it might have been music to the ears of some in the audience.  But we don’t –  or shouldn’t –  hire senior public servants to tell people (including ministers) what they want to hear.   Sadly, there has been little consistent sign of The Treasury offering that “uncomfortable voice of technical rigour, nuance, and realism” in recent years, especially on these big-picture economic performance failings.  They seem to have been content to just go along, to maintain access (perhaps) by not addressing the hard issues, and playing distraction with the fluffy stuff while the economic prospects – the living standards prospects –  of New Zealanders, regional or urban, drifted further behind.

It is still early days for McLiesh.   I have heard a few positive things about the new Secretary, including hints of renewed emphasis on rigour. I hope this particular speech isn’t a foretaste of the standard we can expect, but that the Treasury really does begin asking the hard questions, doing robust analysis, not simply going along with conventional political verities (eg regional development).   Perhaps there isn’t a political demand for such advice and analysis –  are there any politicians who really care? – but shouldn’t stop The Treasury being a voice, perhaps at times crying in the wilderness, pointing to how things might be such better here.  As a hint, regional economic development agencies aren’t likely to be any substantive part of the answer.

 

9 thoughts on “A speech from the new Secretary to the Treasury

  1. The desire to live in cities goes back to before Dick Wittington (1354-1423) set out with his cat to make his name in London. What has changed worldwide is the ability to feed a nation without having a substantial portion of the population actually working in fields on farms. So the growth of cities is inevitable and so is the decline in rural population. Most economists would encourage the market force – once you know something is in decline abandon it.
    Having my roots in British Railways has persuaded me the best managers are those who can manage a declining business. As a English military historian replied when asked who had the best army during WW2 “the Germans and proof of it was their sturdy defence of Italy despite both knowing they had fewer resources and knowing they would inevitably lose”. The managers of the Royal Bank of Scotland when it was booming were well rewarded but it was the managers who had to deal with it after shares dropped from 600p to 10p who must have been the more able.
    My point is rural New Zealand is declining but if that is accepted and the issue tackled with clear eyed realism then we can mitigate its worst effects. It is more important that NZ does so than other countries because the basis of our wealth is in our rural areas (note Fonterra headquarters in Auckland doesn’t milk the cows). Our Provincial Growth Fund should be renamed and the minister in charge ought to be as quietly self-effacing as possible.
    I used to work at Ardmore in buildings that had been a teachers training centre 50 years ago; Ardmore in those days was a remote village south of Auckland but when my daughter entered teachers training it was in the city. Why do we have students in cities where buildings are expensive and roads congested? Note Oxford, Cambridge and Harvard are successful. Why is the accommodation benefit so much higher in our cities? Isn’t it an example of our rural workers subsidising the city dwelling poor? That is two examples, surely most readers can think of more subtle and effective ways of spending $3,000,000,000 to support rural New Zealand.

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  2. “they will need to improve their quality of business and quality of life attributes too”. She seems to consider the quality of life in Auckland to be far superior to other provincial cities. I guess when you are paid exorbitant amounts of cash you can live a pleasant life, but for many Auckland is far from it. Hours of travel and high rent levels, the only reason to be there is for many it is the only place to find work.

    Still when have the poor really been of much interest to governments or the public service. If they were given more than lip service there would not be so many, instead they are just non voting pawns. Used and abused by both sides.

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    • Auckland is pleasant if you are retired or a yuppie. Not so good for kids or parents. For the poor Auckland gives the opportunity to get involved in various rorts (ref Metiria Turei) either taking on lodgers in your state house or being crammed into a garage or tent. For the average worker Auckland is neither better or worse than smaller places except for the greater possibility to change employer and employment type.

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      • Auckland is pleasant if you are retired and own your own home, otherwise you had better saved a million or two. The yuppie can have a good time as long as they are not worried about their own retirement, unless they also have a home.

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      • I am neither a Yuppie nor retired and I live in Auckland quite comfortably as a single working divorcee. My 88 year old ACC assisted handicapped mother and 88 year old father live with me. I have opted for a run down ex state property badly renovated by the previous owner from a 2 bedroom to 6 bedrooms but I have tidied up over the years with paint and a new low cost kitchen, refurbished and enlarged a rudimentary existing 2nd toilet and DIY reinstated a dismantled steel sheet garage in the back garden under the decking to create an additional 7th room storage.

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  3. Maybe New Zealand’s long term economic performance just reflects that the business people who stay (or come) just don’t have a clue about what they’re doing and/or aren’t as ingenious as the myth says we are and/or aren’t motivated by wealth creation. If that’s the case, there’s little the government can do.

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    • Ray Kroc sold ice cream machines for most of his working life until he was 52 years old when he met the MacDonald brothers. He was almost bankrupt with the MacDonalds franchise until he met a angel investor who gave him the funds to instead shift his focus to property ownership.

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  4. I’d read the conclusion of that speech as a signal that Treasury sees the value of economics and analytical rigour. She couldn’t be expected to say that her predecessor had allowed it to deteriorate substantially, but emphasising the importance of economics at Treasury does say something.

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